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A cannabis plant is shown in southwest Quebec on Oct. 8, 2013. (Justin Tang/THE CANADIAN PRESS)
A cannabis plant is shown in southwest Quebec on Oct. 8, 2013. (Justin Tang/THE CANADIAN PRESS)

Pot stocks soar as legal weed seen surviving Trudeau tax Add to ...

Canadian marijuana stocks surged after the head of the country’s biggest producer said his company could cope with taxes as high as 25 per cent, extending a rally that began in the summer with the prospect of legal recreational use.

Bruce Linton, chief executive officer of Canopy Growth Corp., says Prime Minister Justin Trudeau’s government will probably choose to control the distribution of legal recreational marijuana through government-run outlets such as liquor stores. A task force is due to report this month on how Canada can build a legal weed market.

“We can probably carry a tax burden of 25 per cent or so and end up in the consumer hands on a still cost-competitive basis, with a superior product,” Mr. Linton said Monday in an interview at Bloomberg’s Ottawa newsroom.

Canopy, based in Smith Falls, Ont., became the first marijuana producer to trade on a major North American stock exchange when it graduated to the Toronto Stock Exchange in July. It became the first publicly traded Canadian producer of the drug in 2014.

The company’s share price more than doubled this month, bringing its market value past $1.6-billion, on better-than-expected earnings and after U.S. elections widened the scope for legal marijuana. The stock was up as much as 33 per cent Wednesday, and was up 5.4 per cent to $14.17 as of 2:10 p.m. Toronto time.

Emerald Health Therapeutics Inc. jumped as much as 62 per cent intraday, and Aurora Cannabis Inc. climbed as much as 50 per cent.

“Anytime there’s more media attention to the sector it brings in more investors,” Jason Zandberg, an analyst covering marijuana producers at PI Financial Corp. in Vancouver, said by phone. “We found that there’s been a lot of interest from U.S. investors. They have a difficulty in investing in the sector given the weird framework that’s in the U.S. where it’s illegal at a federal level.”

Canopy already produces medical marijuana under an existing legal regime. Mr. Linton says the company, which operates out of a former chocolate factory, can shift production to serve the recreational market when Mr. Trudeau’s government makes that legal.

Part of the appeal of the legal variety will be its quality control, Mr. Linton says. “When it’s lawfully available from a reliable supply chain, which we know we can trust and believe in, there are a lot of people who might discontinue the use of say a glass of wine or a beer and try this.”

Canopy can also generate new formulations of medical marijuana to sell through pharmacies as legalization moves ahead, Linton said. Loblaw Cos., owner of the Shoppers Drug Mart pharmacy chain, said Wednesday its is engaging with the government to dispense marijuana from stores.

“There’s a lot of advantages for Canadian producers,” Mr. Zandberg said. Linton “pointed out some key points. I find there’s a lot of interesting aspects to this market that aren’t well known and he definitely highlighted a few that have caused a bit of excitement as well.”

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